UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50531

ETRIALS WORLDWIDE, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		20-0308891 (I.R.S. Employer Identification No.)
4000 Aerial Center Parkway Morrisville, North Carolina 27560 (Address of principal executive offices)
(919) 653-3400 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The number of shares outstanding of the Registrant’s common stock as of March 31,2009 was approximately 10,740,454.

ETRIALS WORLDWIDE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

Table of Contents

		Page
	Part I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008	3
	Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2009 and 2008	4
	Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended March 31, 2009	5
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2009 and 2008	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24
	Part II – OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Submission of Matters to a Vote of Security Holders	25
Item 5.	Other Information	26
Item 6.	Exhibits	26
Signatures		26
Exhibit Index		27

PART I – Financial Information

Item 1. Financial Statements

etrials Worldwide, Inc.
Consolidated Balance Sheets
	March 31,			December 31,
	2009			2008
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	9,060,658		$	10,699,537
Accounts receivable, net of allowance for doubtful accounts
of $602,598		3,853,791			3,782,191
Inventories		136,500			136,500
Prepaid expenses and other current assets		505,777			299,353
Total current assets		13,556,726			14,917,581

Property and equipment, net of accumulated depreciation of $5,486,886 and $5,198,853, respectively		2,002,639			2,026,478
Other assets		119,538			119,538
Total assets	$	15,678,903		$	17,063,597

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	708,200		$	522,909
Accrued expenses		1,939,338			2,446,552
Deferred revenue		1,215,407			1,637,817
Bank line of credit and other short-term borrowings		1,915,667			1,630,666
Current portion of capital lease obligations		93,524			133,559
Total current liabilities		5,872,136			6,371,503
Capital lease obligations, net of current portion		45,082			-
Long-term borrowings, net of current portion		135,337			197,004
Total liabilities		6,052,555			6,568,507

Commitments and contingencies

Stockholders' equity
Common stock; $0.0001 par value; 50,000,000 shares authorized at
March 31, 2009 and December 31, 2008; and 10,740,454 and
10,767,520 issued and outstanding at March 31, 2009 and
December 31, 2008, respectively		1,074			1,077
Additional paid-in capital		56,297,527			56,203,286
Deferred compensation		(729	)		(1,927	)
Accumulated deficit		(46,671,524	)		(45,707,346	)
Total stockholders' equity		9,626,348			10,495,090

Total liabilities and stockholders' equity	$	15,678,903		$	17,063,597


See accompanying notes.

etrials Worldwide, Inc.
Consolidated Statements of Operations
(unaudited)
	Three Months Ended March 31,
	2009			2008

Net service revenues	$	3,627,092		$	3,708,209
Reimbursable out-of-pocket revenues		10,528			587,632
Total revenues		3,637,620			4,295,841

Costs and expenses:
Costs of revenues		2,041,500			2,581,653
Reimbursable out-of-pocket expenses		10,528			587,632
Sales and marketing		791,067			1,146,426
General and administrative		1,221,024			1,451,048
Research and development		489,876			645,903
Total cost and expenses		4,553,995			6,412,662
Operating loss		(916,375	)		(2,116,821	)

Other income (expenses):
Interest expense		(17,474	)		(46,266	)
Interest income		27,990			137,008
Other expense, net		(58,319	)		(11,405	)
Total other (expense) income, net		(47,803	)		79,337
Net loss	$	(964,178	)	$	(2,037,484	)

Net loss per share:
Basic and diluted	$	(0.09	)	$	(0.19	)

Weighted average common shares outstanding:
Basic and diluted		10,643,787			10,973,575

See accompanying notes.

etrials Worldwide, Inc.
Consolidated Statements of Stockholders' Equity



							Additional								Total
	Common Stock						Paid-In		Deferred			Accumulated			Stockholders’
	Shares			Amount			Capital		Compensation			Deficit			Equity

Balance at December 31, 2008		10,767,520		$	1,077		$	56,203,286	$	(1,927	)	$	(45,707,346	)	$	10,495,090

Stock-based compensation recorded in accordance with SFAS 123R		-			-			88,304		-			-			88,304
Stock-based compensation in connection with Restricted Stock		-			-			5,937		-			-			5,937
Amortization of deferred stock-based compensation		-			-			-		1,198			-			1,198
Cancellation of shares in connection with the 2008 Incentive Bonus Plan		(127,066	)		(13	)		-		-			-			(13	)
Issuance of restricted common stock		100,000			10			-		-			-			10
Net loss		-			-			-		-			(964,178	)		(964,178	)

Balance at March 31, 2009 (unaudited)		10,740,454		$	1,074		$	56,297,527	$	(729	)	$	(46,671,524	)	$	9,626,348

See accompanying notes.

etrials Worldwide, Inc.
Consolidated Statements of Cash Flows
(unaudited)
	Three Months Ended March 31,
	2009			2008
Operating activities
Net loss	$	(964,178	)	$	(2,037,484	)

Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization		288,033			333,051
Non-cash stock-based compensation expense		95,439			314,655
Provision for allowance for doubtful accounts		-			159,891
Changes in operating assets and liabilities:
Accounts receivable		(71,600	)		(738,099	)
Prepaid expenses and other assets		(206,424	)		(186,875	)
Inventories		-			93,611
Accounts payable and accrued expenses		(202,923	)		368,322
Deferred revenue		(422,410	)		836,384
Net cash used in operating activities		(1,484,063	)		(856,544	)

Investing activities
Purchase of property and equipment		(98,774	)		(386,829	)
Capitalized internal software development costs		(165,420	)		-
Maturities of short-term investments		-			698,309
Net cash (used in) provided by investing activities		(264,194	)		311,480

Financing activities
Net proceeds from bank line of credit		285,000			654,000
Payments on bank equipment loan		(61,667	)		(61,666	)
Principal payments on capital leases		(113,952	)		(103,629	)
Proceeds from issuance of stock options		-			5,319
Cancellation of shares in connection with the 2008 Incentive Bonus Plan		(13	)		-
Issuance of restricted common stock		10			-
Net cash provided by financing activities		109,378			494,024

Net decrease in cash and cash equivalents		(1,638,879	)		(51,040	)
Cash and cash equivalents at beginning of year		10,699,537			13,792,508
Cash and cash equivalents at end of year	$	9,060,658		$	13,741,468

Supplemental cash flow information:
Cash paid for interest	$	18,088		$	41,958
Non-cash information:
Purchase of fixed assets under capital lease	$	119,000		$	-


See accompanying notes.

etrials Worldwide, Inc.

Notes to Consolidated Financial Statements (unaudited)

1. Organization and Capitalization

etrials Worldwide, Inc.

etrials Worldwide, Inc. (“etrials” or the “Company”) is a leading eClinical solutions provider of a suite of software applications, hosting and professional services to pharmaceutical, biotechnology, medical device, and contract research organizations. The Company’s end-to-end, Web-based eClinical applications work together to coordinate data capture, logistics, patient interaction and trial management through an integrated and comprehensive suite of products, services and hosted solutions.

The Company’s flexible eClinical offerings address the costly and time-consuming clinical trial process of drug development through easy-to-use, adaptable applications that enable more real-time visibility into the state and progress of the clinical trial process. This results in earlier and more dynamic decision-making and ultimately lower cost and shorter time-to-market.

The Company’s operations are subject to certain risks and uncertainties, including among others, rapid technological change, increased competition from existing competitors and new entrants, lack of operating history, and dependence upon key members of the management team. The operating results are also affected by general economic conditions impacting the pharmaceutical industry.

Unaudited Interim Financial Statements

The accompanying consolidated balance sheet as of March 31, 2009, consolidated statements of operations for the three months ended March 31, 2009 and 2008, consolidated statements of cash flows for the three months ended March 31, 2009 and 2008 and consolidated statement of stockholders’ equity for the three months ended March 31, 2009 are unaudited. The unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of such financial statements. The information disclosed in the notes to the financial statements for these periods is unaudited. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected for the entire fiscal year or for any future period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, etrials, Inc. and etrials Worldwide LTD. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results will differ from those estimates and may differ materially.

Revenue Recognition

The Company derives its revenues from providing software application-hosting which includes: services, software and usage fees, hosting fees, and other fees. Revenues resulting from software application-hosting are recognized in accordance with Emerging Issues Task Force (EITF) Issue No. 00-03, Application of AICPA Statement of Position 97-2 to Arrangements that include the Right to Use Software Stored on Another Entity’s Hardware, Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) Nos. 101 and No. 104, Revenue Recognition. The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the collection of fees is probable; and (4) the amount of fees to be paid by the customer is fixed or determinable.

The Company derives revenues from providing software application-hosting and related services to customers on clinical trial projects. The Company offers its eClinical solutions through an application service provider model. Revenues resulting from our professional services and software application-hosting, which include hosting fees and software usage fees, are generated in three stages of drug development for each clinical trial. The first stage (development and deployment) includes trial and application setup, including design of electronic case report forms and edit checks, investigator site training, and implementation of the system and server configuration. The second stage (study conduct) consists of project management services, application hosting and related professional and support services. The third stage (close out) consists of services required to close out, or lock, the database for the clinical trial and deliver final data sets to the client.

Services provided during the three phases of clinical trials are typically earned under fixed-price contracts. Although etrials enters into master agreements with each customer, these master agreements do not contain any minimum revenue commitment by customers and contain general terms and conditions. All services and revenues are covered by separately negotiated addendums called task orders. Revenues generated from each task order, including; services, software subscription and usage fees, and hosting fees are generally recognized using the proportional performance method, measured principally by the total labor hours incurred as a percentage of estimated total labor hours for each contract. This method is used because management considers total labor hours incurred to be the best available measure of progress on these contracts.

The estimated total labor hours of contracts are reviewed and revised periodically throughout the duration of the contracts with adjustment to revenues from such revisions being recorded on a cumulative basis in the period in which the revisions are made. When estimates indicate a loss, such loss is recognized in the current period in its entirety. Because of the inherent uncertainties in estimating total labor hours, it is reasonably possible that the estimates will change in the near term and could result in a material change. The Company records a loss for its contracts at the point it is determined that the total estimated contract costs will exceed management’s estimates of contract revenues.

Customers generally have the ability to terminate contracts upon 30 days notice to the Company. However, these contracts typically require payment to etrials for fees earned from all services provided through the termination date. In the event that a customer cancels a clinical trial and its related task order, all deferred revenue is recognized and certain termination related fees may be charged.

Provisions for estimated losses on uncompleted contracts are made on a contract-by-contract basis and are recognized in the period in which such losses become probable and can be reasonably estimated. As of March 31, 2009 and December 31, 2008, the Company had not experienced any material losses on uncompleted contracts.

The Company accounts for pass-through expenses in accordance with EITF Issue No. 01-14, Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred (EITF No. 01-14). EITF No. 01-14 requires reimbursable out-of-pocket expenses incurred to be characterized as revenues in the statement of operations. Pass-through revenues and expenses include diary hardware and related taxes, wireless telecommunications, shipping, and travel expenses incurred on the client’s behalf.

Costs of revenues consist of compensation and related fringe benefits for project-related associates, unreimbursed project related costs and indirect costs including facilities, information systems, and other costs. Selling, general, and administrative costs are charged to expense as incurred.

Unbilled services are recorded for revenue recognized to date that has not yet been billed to the customers. In general, amounts become billable upon the achievement of milestones or in accordance with predetermined payment schedules. Deferred revenue represents amounts billed or cash received in advance of revenue recognition.

Cash, Cash Equivalents and Short-term Investments

The Company accounts for its short-term investments in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the time of purchase to be cash equivalents and investments with original or remaining maturities of between 91 days and one year to be short-term investments. In order to manage exposure to credit risk, the Company invests in high quality investments rated at least A2 by Moody’s Investors Service or A by Standard & Poors.

Inventory

Inventory consists of electronic patient diaries purchased for future clinical trials. Inventory is valued at the lower of cost or market value and is allocated on an average cost method.

Foreign Currency

The financial Statements of the Company’s foreign subsidiary in the United Kingdom are remeasured in accordance with SFAS No. 52, Foreign Currency Translation. The Company determined that the functional currency of its United Kingdom operations is the U.S. dollar. Assets and liabilities denominated in foreign currencies are remeasured into U.S. dollars at current exchange rates. Operating results are remeasured into U.S. dollars using the average rates of exchange prevailing during the period. Remeasurement adjustments for non-functional currency monetary assets and liabilities are included in other expense, net in the accompanying consolidated statements of operations.

Goodwill

The Company accounts for its goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. The Company concluded it has one reporting unit for purposes of performing the goodwill impairment analysis. Under the non-amortization approach, goodwill and certain intangibles are not amortized into results of operations, but instead are reviewed for impairment at least annually and written down and charged to operations only in the periods in which the recorded value of goodwill exceeds its fair value.

During the nine months ended September 30, 2008, the Company experienced a significant decline in market capitalization. In addition, the Company experienced a decline in revenues resulting from, among other things, customer delays and timing of new contracts. These conditions and their effect on the Company’s current and future financial performance and financial condition indicated a possible impairment of the Company’s recorded goodwill balance and required the Company to perform an interim impairment analysis to determine whether actual impairment had occurred. Based on this interim impairment analysis, management concluded that its goodwill balance was impaired and therefore recorded an impairment charge of $3,995,000. The Company’s goodwill evaluation utilized various valuation techniques, primarily an estimation of the present value of its future cash flows that considered the anticipated revenue and earnings effects of the economic conditions, industry conditions, and conditions specific to the Company described above.

As part of its annual goodwill impairment analysis performed during the fourth quarter of 2008, management noted that the Company had experienced a significant decline in its market capitalization subsequent to November 2008. In addition, the global economic recession continued to have a negative impact on the Company’s revenues and the timing of new contracts, which impacted certain assumptions used in the goodwill impairment analysis, including the projected cash flows, discount rates and control premiums. Accordingly, the Company performed an impairment analysis during the fourth quarter for the remaining goodwill balance and concluded that additional impairment existed. As a result of this analysis, the Company concluded that the remaining goodwill balance was fully impaired. Accordingly, the Company recorded a total goodwill impairment charge of $8,011,037 for the year-ended December 31, 2008.

Loss Per Common Share

Basic and diluted loss per common share was determined by dividing net loss by the weighted average common shares outstanding during the period in accordance with SFAS No. 128, Earnings Per Share (SFAS 128). Diluted net income per share includes the effects of all dilutive, potentially issuable common shares.

The following common share equivalents have been excluded from the computation of diluted weighted average shares outstanding as the effect would have been anti-dilutive:

	Three Months Ended
	March 31
	2009		2008

Unvested restricted common stock		157,881		346,670
Unit purchase options		-		350,000
Stock options outstanding		1,826,200		2,815,314

3. Cash, Cash Equivalents and Short-term Investments

Cash, cash equivalents and short-term investments were as follows:

	March 31		December 31
	2009		2008

Cash	$	1,345,259	$	1,134,164
Certificates of deposit		1,008,932		1,000,000
Money market		2,954,324		3,570,987
U.S. agency notes		1,590,757		2,358,845
Corporate bonds		2,161,386		2,635,541
Total cash and cash equivalents	$	9,060,658	$	10,699,537

4. Accounts Receivable

Accounts receivable consists of the following:

	March 31			December 31
	2009			2008

Billed accounts receivable	$	2,564,559		$	2,540,934
Unbilled accounts receivable		1,891,830			1,843,855
Total accounts receivable		4,456,389			4,384,789
Allowance for doubtful accounts		(602,598	)		(602,598	)

	$	3,853,791		$	3,782,191

5. Accrued Expenses

Accrued expenses consist of the following:

	March 31		December 31
	2009		2008

Accrued severance	$	374,677	$	622,587
Accrued other expenses		374,229		550,368
Accrued client reimbursable expenses		258,837		290,559
Accrued bonus		178,862		278,582
Accrued vacation		254,149		235,094
Accrued rent		212,172		220,829
Accrued professional fees		165,518		146,203
Accrued compensation		120,894		102,330

	$	1,939,338	$	2,446,552

The Company approved an executive bonus plan that provides for qualified compensation to certain executives if certain performance measures are met. The consideration earned will be paid 50% in cash and 50% in the form of restricted stock. As of March 31, 2009 the Company had accrued $178,862 under this bonus plan.

6. Debt

	March 31		December 31
	2009		2008
Borrowings:
Bank line of credit, with an interest rate of 3.5% at March 31, 2009 and December 31, 2008	$	1,669,000	$	1,384,000
Bank equipment loan, with an interest rate of 4.0% at March 31, 2009 and December 31, 2008		208,670		250,337
Bank equipment loan, with an interest rate of 4.0% at March 31, 2009 and December 31, 2008		173,334		193,333

Total borrowings	$	2,051,004		1,827,670
Bank line of credit and other short-term borrowings		1,915,667		1,630,666

Long-term borrowings, less current portion	$	135,337	$	197,004

	March 31
	2009

Aggregate annual maturities of long-term debt (excluding bank line of credit):
2009 (remaining nine months)	$	185,000
2010		163,670
2011		33,334
Total	$	382,004

On February 1, 2005, the Company entered into two loan agreements with RBC Centura Bank. These loan agreements were modified on May 31, 2006 when a third loan agreement was added and on May 31, 2007 when a fourth loan agreement was added. The first agreement is a $2,500,000 revolving accounts receivable line of credit which provides for borrowings up to 80% of current accounts receivable balance at the prime rate of interest plus 0.25%. This line of credit has $1,669,000 outstanding as of March 31, 2009 and these borrowings are secured primarily by accounts receivable and other corporate assets. The second agreement is a $300,000 equipment line of credit which was repaid during the three months ended March 31, 2008. This loan funded equipment purchases and provided for interest at the bank’s prime rate of interest plus 1.0%. The third agreement is a $500,000 equipment loan which has $208,670 outstanding as of March 31, 2009. Borrowings under this equipment loan are being paid over a period of 36 months at the bank’s prime rate of interest plus 0.75%. The fourth agreement is a $240,000 equipment line of credit which had $173,334 outstanding as of March 31, 2009. This loan funded equipment purchases and provided for interest at the bank’s prime rate of interest plus 0.75%. Borrowings under the equipment line of credit will be paid over a period of 39 months. The capital equipment borrowings are secured primarily by the fixed assets that were acquired. In addition to the loans listed above, the Company has an additional amount of $500,000 available to borrow through the draw-down period which expires September 10, 2009. As of March 31, 2009, the Company has not exercised this option.

7. Contingencies and Guarantees

From time to time, the Company may become involved in various legal actions, administrative proceedings and claims in the ordinary course of its business. Although it is not possible to predict with certainty the outcome of such legal actions or the range of possible loss or recovery, based upon current information, management believes such legal actions will not have a material effect on the financial position or results of operations of the Company.

From time to time, the Company enters into certain types of contracts that contingently require it to indemnify parties against third party claims. These obligations relate to certain agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship. Other obligations relate to certain commercial agreements with its customers, under which the Company may be required to indemnify such parties against liabilities and damages arising out of claims of patent, copyright, trademark or trade secret infringement by its software. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not had to make any payments for these obligations, and no liabilities have been recorded for these obligations on the Company’s consolidated balance sheets as of March 31, 2009 and December 31, 2008.

8. Stockholders’ Equity

As of March 31, 2009, the Company had reserved a total of 2,727,760 of its authorized 50,000,000 shares of common stock for future issuance as follows:

	March 31		December 31
	2009		2008

Unit purchase options		-		350,000
Stock options outstanding		1,826,200		1,848,504
Reserved for future stock option grants and restricted stock grants		901,560		1,075,882
Total shares reserved for future issuance		2,727,760		3,274,386

9. Stock Based Compensation

The Company’s 2005 Equity Performance Plan (the “Plan”) was approved by the stockholders of the Company on February 9, 2006. The purpose of the Plan is to provide incentives to eligible employees, officers, directors and consultants in the form of non-qualified stock options and, as permissible, incentive stock options. On March 31, 2009, the Company had a total of 3,500,000 shares of common stock reserved for issuance under the Plan. Of this amount, 901,560 shares were available for future stock option grant as of March 31, 2008.

Effective with the adoption of SFAS 123R, the Company has elected to use the Black-Scholes-Merton option pricing model to determine the weighted average fair value of options granted. The Company has a limited trading history for its common stock as it began trading on the NASDAQ Global Market on February 10, 2006. Accordingly, the Company has determined the volatility for options granted in 2007 and 2008 based on an analysis of reported data for a peer group of companies that have issued stock options with substantially similar terms. The expected life of options granted by the Company has been determined based upon the “simplified” method as allowed under the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (“SAB 107”) and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS 123R requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas, SFAS 123 permitted companies to record forfeitures based on actual forfeitures. The assumptions utilized to determine the above values are indicated in the following table:

	Three Months Ended March 31,
	2009
Expected dividend yield	0%
Expected volatility	100%
Risk-free interest rate	1.72%
Expected life (in years)	4

During the three months ended March 31, 2009, the Company recorded $89,502 of stock-based compensation expense, of which $88,304 was related to options issued subsequent to the adoption of SFAS No. 123R. As of March 31, 2009, there was $595,064 of unrecognized compensation expense related to non-vested share awards issued under SFAS No. 123R that is expected to be recognized over a weighted-average period of 3.05 years. The remaining stock-based compensation is due to the amortization of previously recorded deferred compensation, for stock options that have continued to be accounted for under APB 25 in accordance with the prospective transition method of SFAS 123R.

The following summarizes the activity of the Plan for the three months ended March 31, 2009:

								Weighted
				Weighted				Average
				Average		Aggregate		Remaining
	Number of			Exercise		Intrinsic		Contractual
	Shares			Price		Value		Term (years)

Outstanding at December 31, 2008		1,848,504		$	2.67
Granted		282,500			0.72
Exercised		-
Canceled		(304,804	)		2.23
Outstanding at March 31, 2009		1,826,200		$	2.44	$	-

Exercisable at March 31, 2009		915,766		$	3.29	$	-	3.96

10. Income Taxes

The Company adopted the provisions of FIN 48, an interpretation of the SFAS 109, Accounting for Income Taxes, on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no material adjustment in the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007 the Company had no unrecognized tax benefits which would affect the Company’s effective tax rate. At March 31, 2009, the Company had no unrecognized tax benefits.

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. As of the date of adoption, January 1, 2007, and as of March 31, 2009, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company has its tax years of 2005 through 2008 open to examination by federal tax authorities and 2004 through 2008 for state tax jurisdictions. The Company’s only foreign subsidiary is in the United Kingdom and has tax years of 2006 through 2008 open to examination. The Company has not been informed by any tax authorities for any jurisdiction that any of its tax years are under examination as of March 31, 2009.

The estimated marginal tax rate for etrials Worldwide, Inc. for the quarter ended March 31, 2009 is 34% and 5% for federal and state tax purposes, respectively. It is expected that should the Company be able to utilize its deferred tax assets the taxable income for the Company will be between $335,000 and $10,000,000. The federal tax rate used reflects this tax bracket. The state tax rate is based on the appropriate rates for the states that the Company is currently filing in, net of the federal tax benefit of the state tax deduction.

The Company has a loss for the interim period ended March 31, 2009 and expects to be in a loss position for both the remaining interim periods of 2009 and for financial statement purposes for the annual period ended December 31, 2009. There are no anticipated additions that will result in taxable income during this period; accordingly, the expected result is a tax loss for the year; therefore, no federal or state income taxes are expected and none have been recorded. Accordingly, the Company’s estimated annual effective tax rate is zero.

Due to the Company's history of losses from 1995 through 2008, there is not enough evidence as of March 31, 2009 to support an expectation that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, to the extent that deferred tax assets exceed deferred tax liabilities that are anticipated to reverse within the same period, the deferred tax assets have been reduced by a valuation allowance, since it has been determined that it is more likely than not that all of the deferred tax assets will not be realized.

At December 31, 2006, the Company no longer qualified to use the cash method of accounting for tax purposes under the Small Business Taxpayer Exemption. An adjustment was made under IRC Section 481 to convert the Company to the accrual method for tax purposes and since this adjustment was negative, it was included in the Company’s 2007 tax return and therefore no deferred tax asset or liability exists for the requested cash to accrual method change.

Under the Tax Reform Act of 1986, the amounts of and benefits from net operating losses carried forward may be impaired or limited in certain circumstances. Events which might cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative change in ownership of more than 50% over a three-year period.

11. Subsequent Event

As previously announced, we have entered into an agreement to be acquired by Bio-Imaging Technologies, Inc. (NASDAQ: BITI) (d/b/a "BioClinica”) through a tender offer for all of the outstanding shares of etrials stock. For each share of etrials stock, shareholders will receive 0.124 shares of newly issued Bio-Imaging common stock, 0.076 shares of newly issued Bio-Imaging preferred stock, and $0.15 in cash. Subject to customary closing conditions, and assuming a majority of etrials shares will be tendered pursuant to the tender offer, the tender offer is expected to expire on or about June 15, 2009.

12. Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated financial position and results of operations.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company did not choose to measure any financial assets or liabilities at fair value pursuant to SFAS 159.

In December 2007, the FASB issued FASB Statements No. 141 (revised 2007), “Business Combinations” (SFAS 141R) and No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160). Effective for fiscal years beginning after December 15, 2008, the standards will improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. SFAS 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS 160 provides guidance for accounting and reporting of noncontrolling interests in consolidated financial statements. The Company is currently assessing the impact of SFAS 141R and SFAS 160 on its consolidated financial statements and future operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS No. 161), an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company believes that the adoption of SFAS No. 161 will not have a material effect on its financial position or results of operations.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162) which provides a framework for selecting accounting principals to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principals for nongovernmental entities. The Company does not expect the adoption of SFAS 162 to have any impact on the Company’s consolidated financial statements. SFAS 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, as well as in our Form 10-K filed on March 10, 2009.

Overview

We offer a broad range of clinical trial technology and services including electronic data capture, handheld devices, and interactive voice and Web response software which is designed to speed and improve the process of collecting data in clinical trials performed for drug and medical device development. We provide pharmaceutical, biotechnology, medical device companies and contract research organizations with integrated software technology and services designed to significantly reduce the time spent collecting clinical trials data, and managing clinical trials performance, using an automated and easy-to-use mechanism to collect data directly from clinical investigators and patients. We believe that our automated data collection software enables our customers to reduce overall clinical trial research costs, enhance data quality and reduce the time it takes to close a study database.

Industry analysts and commentators have estimated that the growth in the use of eClinical technologies will continue to accelerate. We will have to continue to expand our customer base and technologies in order to maintain and grow our market share. The number of active eClinical trials being performed by us has grown from 24 in 2002 to 84 in 2009 because of the increased market penetration and adoption of eClinical technologies by the pharmaceutical and biotechnology industries.

Recent Events

This description is for informational purposes only and is not an offer to purchase or a solicitation of an offer to sell securities of etrials. The tender offer described herein has not yet been commenced. At the time the tender offer is commenced, Bio-Imaging intends to file a registration statement on Form S-4 and a tender offer statement on a Schedule TO containing an offer to purchase, a letter of transmittal and other related documents with the SEC, and etrials intends to file with the SEC a solicitation/recommendation statement on Schedule 14D-9 and, if required, will, file a proxy statement or information statement with the SEC in connection with the merger, the second step of the transaction, at a later date. Such documents will be mailed to stockholders of record and will also be made available for distribution to beneficial owners of common stock of etrials. The solicitation of offers to buy common stock of etrials will only be made pursuant to the offer to purchase, the letter of transmittal and related documents. Stockholders are advised to read the offer to purchase and the letter of transmittal, the solicitation/recommendation statement, the proxy statement, the information statement and all related documents, if and when such documents are filed and become available, as they will contain important information about the tender offer and proposed merger. Stockholders can obtain these documents when they are filed and become available free of charge from the SEC’s website at http://www.sec.gov, or from the information agent Bio-Imaging selects. In addition, copies of the solicitation/recommendation statement, the proxy statement and other filings containing information about etrials, the tender offer and the merger may be obtained, if and when available, without charge, by directing a request to etrials, or on etrials corporate website at http://www.etrials.com.

Sources of Revenues

We derive revenues from providing software application-hosting and related services to our customers on clinical trial projects. We offer our eClinical solutions through an application service provider model. We generate revenues from our professional services and software application-hosting, which include hosting fees and software usage fees, in three stages of drug development for each clinical trial. The first stage (development and deployment) includes trial and application setup, including design of electronic case report forms and edit checks, investigator site training, and implementation of the system and server configuration. The second stage (study conduct) consists of project management services, application hosting and related professional and support services. The third stage (close out) consists of services required to close out, or lock, the database for the clinical trial and deliver final data sets to the client.

Software usage fees and hosting fees revenues - We derive our software usage fees and hosting fees revenues from our eClinical solution suite, which includes primarily our electronic data capture, electronic patient diaries, interactive voice response and post marketing solutions.

Services revenue - We provide our customers a full range of professional services in support of our eClinical software solutions. These services are delivered during all three stages of the clinical trial as described above.

Services provided for all three stages are generally on a fixed fee basis according to the budget assumptions specified in the contract. If budget assumptions change, etrials and the client generally agree to a change in scope amendment to the contract. We recognize revenues from services, including software subscriptions and usage fees, and hosting fees, utilizing the proportional performance method, measured principally by the total labor hours incurred as a percentage of estimated total labor hours for each contract. We use this method because management considers total labor hours incurred to be the best available measure of progress on these contracts. The company records a loss for its contracts at the point it is determined that the total estimated contract costs will exceed management estimates of contract revenues. No such losses had been incurred as of March 31, 2009.

Billing for eClinical services will occur over the life of the contract. Although the billing increments are negotiated in each contract individually, the total value of the agreement is generally invoiced in the following increments:

Stage			% of Contract Value
Contract execution			25%
System deployment			25%
Study conduct			40%
Project close-out			10%
			100%

Customers generally have the ability to terminate contracts upon 30 days notice to us. In the event that a customer cancels a clinical trial and its related task order, all deferred revenue is recognized and certain termination related fees may be charged.

We record new projects into backlog when we receive written confirmations from clients that they have decided to award us contracts or work orders for specific projects, which means that our backlog includes projects for which we do not have contracts or project work orders signed by customers. The amount of backlog is the total amount of the project budget agreed upon by the client and us less revenue previously recognized by us on each project. Customer delays in conducting clinical trials and the ability of customers to cancel projects without penalty means that our backlog is not a guaranty as to the amount or timing of future revenue.

Reimbursable Out-of-pocket Revenues – Reimbursable out-of-pocket revenues and corresponding expenses consist of client pass-through costs, which can fluctuate quarterly based upon contract activity.

Cost of Revenues and Operating Expenses

We allocate overhead expenses such as rent, occupancy charges, certain office administrative costs, depreciation and employee benefit costs to all departments based on headcount. As such, general overhead expenses are reflected in the costs of revenues, sales and marketing, research and development, and general and administrative expense categories. We charge overhead costs that can be specifically identifiable back to the functional area.

Costs of Revenues - Costs of revenues consists primarily of compensation and related fringe benefits for project-related personnel, department management and all other dedicated project related costs and indirect costs including facilities, information systems, hosting facility fees, server depreciation, amortization of capitalized internal software development costs, software license and royalty costs and other costs. Costs can fluctuate and impact our expenses based upon employee utilization levels associated with specific projects.

Sales and Marketing - Sales and marketing expenses consist primarily of employee-related expenses, including travel, marketing programs (which include product marketing expenses such as trade shows, workshops and seminars, corporate communications, other brand building and advertising), allocated overhead and commissions. We expect that sales and marketing expenses will increase as we expand and further penetrate our existing customer base, expand our domestic and international selling and marketing activities associated with existing and new product and service offerings, and build brand awareness.

Research and Development - Research and development expenses consist primarily of employee-related expenses, allocated overhead and outside contractors. We have historically focused our research and development efforts on increasing the functionality, performance and integration of our software products. We expect that in the future, research and development expenses will increase as we introduce additional integrated software solutions to our product suite and develop automation tools to streamline use and deployment of our technologies. We capitalize certain internal software development costs for new software products and releases, which are incurred during the application development stage and amortize them over the software’s estimated useful life of one to five years. The amortization of such capitalized costs is included in costs of revenues.

General and Administrative - General and administrative expenses consist primarily of employee-related expenses, professional fees, other corporate expenses and allocated overhead. We expect that in the future, general and administrative expenses will decrease slightly as a percentage of revenues, as a result of an organizational focus on driving operational efficiency, as well as the fact that we do not anticipate the level of severance expense that was incurred during 2008.

Foreign Currency

The reporting currency for the Company is the U.S. dollar. The financial statements of the Company’s foreign subsidiary in the United Kingdom are re-measured in accordance with SFAS No. 52, Foreign Currency Translation. Re-measurement adjustments for non-functional currency monetary assets and liabilities are included in other income (expense) in the accompanying consolidated statements of operations.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. These estimates include, among others, our revenue recognition policies related to the proportional performance methodology of revenue recognition of contracts and assessing our goodwill for impairment annually. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances. Actual results will differ and may differ materially from the estimates if past experience or other assumptions do not turn out to be substantially accurate.

Our significant accounting policies are presented within Note 2 to our consolidated financial statements as filed with the SEC on Form 10-K on March 10, 2009, and the following summaries should be read in conjunction with the unaudited consolidated financial statements and the related notes included in this Quarterly Report. While all accounting policies impact the financial statements, certain policies may be viewed as critical. Critical accounting policies are those that are both most important to the portrayal of financial condition and results of operations and that require management’s most subjective or complex judgments and estimates. Our management believes the policies that fall within this category are the policies on revenue recognition, accounting for stock-based compensation, and income taxes.

Revenue Recognition

We derive our revenues from providing software application-hosting and related services. We recognize revenues resulting from application hosting services in accordance with Emerging Issues Task Force (EITF) Issue No. 00-03, Application of AICPA Statement of Position 97-2 to Arrangements that include the Right to Use Software Stored on Another Entity’s Hardware and Securities and Exchange Commission Staff Accounting Bulletins Nos. 101 and No. 104, Revenue Recognition. We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the collection of fees is probable; and (4) the amount of fees to be paid by the customer is fixed or determinable.

Overall services provided during clinical trials are typically earned under fixed-price contracts. Although we enter into master agreements with each customer, the master agreements do not contain any minimum commitment by customers and contain general terms and conditions. All services and revenues are covered by separately negotiated addendums called task orders. We generally recognize revenues generated from each project or task order using the proportional performance method, measured principally by the total labor hours incurred as a percentage of estimated total labor hours for each contract. We use this method because management considers total labor hours incurred to be the best available measure of progress on these contracts. We review and revise the estimated total labor hours of contracts periodically throughout the duration of the contracts with adjustment to revenues from such revisions being recorded on a cumulative basis in the period in which the revisions are made. When estimates indicate a loss, we recognize the loss in the current period in its entirety. Because of the inherent uncertainties in estimating total labor hours, it is reasonably possible that the estimates will change in the near term and could result in a material change.

Customers generally have the ability to terminate contracts upon 30 days written notice. In the event that a customer cancels a clinical trial and its related task order, deferred revenue is recognized for the work performed prior to termination and certain termination related fees may be charged. Consequently, termination of a contact may result in us recognizing more revenue during the period in which the termination occurs.

Deferred revenue represents amounts billed or cash received in advance of revenue recognition. Included in accounts receivable are unbilled accounts receivable, which represent revenue recognized in excess of amounts billed.

Provisions for estimated losses on uncompleted contracts are made on a contract-by-contract basis and are recognized in the period in which such losses become probable and can be reasonably estimated. To date, we have not experienced any material losses on uncompleted contracts.

The Company generally does not require collateral as a substantial amount of the revenues are generated from recurring customers. Management periodically reviews the aging of customer accounts receivable balances, the current economic environment and its industry experience and establishes an allowance on accounts receivable based on these reviews.

We account for pass-through expenses in accordance with EITF Issue No. 01-14, Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred. EITF No. 01-14 requires reimbursable out-of-pocket expenses incurred to be characterized as revenue in the statement of operations. Pass-through revenues and expenses include diary hardware and related taxes, wireless telecommunications, shipping, and travel expenses incurred on the client’s behalf.

Accounting for Stock-Based Compensation

The Company adopted the provisions of SFAS No. 123 (Revised 2004), Share Based Payments (SFAS 123R) on January 1, 2006. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. The Company will recognize excess tax benefits when those benefits reduce current income taxes payable.

Since the Company used the minimum-value method as a non-public company to estimate the fair value of stock awards under SFAS 123 for pro forma footnote disclosure purposes, the Company was required to adopt SFAS 123R using the “prospective-transition” method, upon the effective date. Under the prospective method, nonpublic entities that previously applied SFAS 123 using the minimum-value method whether for financial statement recognition or pro forma disclosure purposes will continue to account for non-vested equity awards outstanding at the date of adoption of SFAS 123R in the same manner as they had been accounted for prior to adoption (APB 25 intrinsic value method for the Company). All awards granted, modified, or settled after the date of adoption are accounted for using the measurement, recognition, and attribution provisions of SFAS 123R. The Company has continued to recognize compensation expense for awards issued prior to the adoption of SFAS 123R in accordance with the provisions of APB 25. Awards granted to employees subsequent to January 1, 2006 have been accounted for in accordance with SFAS 123R.

Goodwill

Accounting for Income Taxes

In connection with preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves the assessment of our net operating loss carry-forwards and credits, as well as estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as reserves and accrued liabilities, for tax and accounting purposes. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Based on historical results, we believe that it is more likely than not that we will not realize the value of our deferred tax assets and therefore have provided a full valuation allowance against our net deferred tax assets as of March 31, 2009.

Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Net service revenues decreased 2.2% to $3,627,092 for the three months ended March 31, 2009 as compared to $3,708,209 for the three months ended March 31, 2008. The decrease in net revenue is primarily the result of a 32.3% decline in active studies during the first quarter of 2009, compared to the first quarter of 2008. This decline was partially offset by three significant change orders to existing contracts that resulted in an increase to revenue in this quarter of approximately $600,000. During the quarter ended March 31, 2009, we experienced cancellations of $5.0 million and ended the quarter with $3.3 million of studies on hold. This was a direct reflection of the economic times and the fact that customers are opting to cancel studies sooner than was the case in the past, especially if they do not show promising results early in the study. As a result, total available backlog decreased 26.3% to $18.5 million at March 31, 2009 compared to $25.1 at December 31, 2008. Of the $18.5 million in total available backlog, $2.5 million was scheduled to start later than six months, or after September 30, 2009. Approximately 47% and 46% of our total available backlog as of March 31, 2009 and December 31, 2008, respectively consisted of fully executed contracts.

Reimbursable out-of-pocket revenues and corresponding expenses decreased to $10,528 from $587,632 for the three months ended March 31, 2009 and 2008, respectively. This decrease is primarily the result of fewer active diary related projects in 2009 compared to 2008. The hardware and wireless charges associated with the diary devices are responsible for driving the reimbursable expenses, so in the first quarter of 2008 the expenses were much higher. The majority of the Company’s award commitments in the first quarter of 2009 are studies requiring our interactive voice response (IVR) and electronic data capture (EDC) solutions.

Costs of revenues decreased 20.9 % to $2,041,500 from $2,581,653 for the three months ended March 31, 2009 and 2008, respectively. The decrease was primarily a result of a reduction in headcount of 15 employees compared to last year and a reduction in direct project costs. As a percentage of net service revenues, costs of revenues decreased to 56.3% from 69.6% for the three months ended March 31, 2009 and 2008, respectively.

Sales and marketing costs decreased 31.0% to $791,067 from $1,146,426 for the three months ended March 31, 2009 and 2008, respectively. This decrease was primarily the result of a decrease in headcount of 5 employees, in addition to a reduction in recruiting expense. As a percentage of net service revenues, sales and marketing costs decreased to 21.8% from 30.9% for the three months ended March 31, 2009 and 2008, respectively.

General and administrative costs decreased by 15.9% to $1,221,024 from $1,451,048 for the three months ended March 31, 2009 and 2008, respectively. This decrease was primarily the result of a reduction in headcount of 3 employees. As a percentage of net service revenues, general and administrative expenses decreased to 33.7% from 39.1% for the three months ended March 31, 2009 and 2008, respectively.

Research and development costs decreased by 24.2% to $489,876 from $645,903 for the three months ended March 31, 2009 and 2008, respectively. The decrease was primarily the result of additional costs of $165,420 capitalized in connection with the development of internal software. As a percentage of net service revenues, research and development expenses decreased to 13.5% from 17.4% for the three months ended March 31, 2009 and 2008, respectively.

Other income (expense) for the three months ended March 31, 2009 was $(47,803) as compared with $79,337 for the three months ended March 31, 2008. The decrease is primarily due to lower interest rates, as well as reduced cash investments.

We experienced a net loss of $964,178 compared with net loss of $2,037,484 for the three months ended March 31, 2009 and 2008, respectively. The reduction in the net loss for the three months ended March 31, 2009 compared to March 31, 2008 was primarily the result of lower operating expenses in 2009.

Liquidity and Capital Resources

The Company’s principal sources of cash have been from revenues generated by the Company’s software application hosting and related services, as well as from proceeds from the issuance of various debt instruments and the sale of equity securities.

At March 31, 2009, the Company had cash and cash equivalents of approximately $9.0 million. The Company’s cash and cash equivalents decreased by approximately $1.6 million during the three months ended March 31, 2009. During the quarter we borrowed an additional $0.3 million against our available line of credit, resulting in an outstanding principal balance of $1.7 million at March 31, 2009.

In the three months ended March 31, 2009 and 2008 operating activities used approximately $1.6 million and $0.9 million of net cash, respectively. The increase in net cash used in operating activities was primarily the result of our operating loss.

In the three months ended March 31, 2009 we used $0.3 million of net cash in investing activities, as compared to $0.3 million of net cash provided by investing activities for the three months ended March 31, 2008. The decrease is primarily attributed to the reduction of net sales of short-term investments.

In the three months ended March 31, 2009 and 2008 financing activities provided approximately $0.2 and $0.5 of net cash, respectively. The decrease was primarily the result of a reduction in new borrowing for the three months ending March 31, 2009 compared to March 31, 2008 of approximately $0.2 million.

This paragraph addresses our liquidity in the event we were to remain independent, rather than being acquired by Bio-Imaging. The Company intends to continue to fund the enhancement and expansion of the etrials eClinical software technologies through both internal development and the acquisition of additional complementary technologies in the future. The Company believes its existing cash, cash equivalents, short-term investments, and cash provided by operating activities and our debt facilities will be sufficient to meet our working capital and capital expenditure needs over the next twelve months. The Company’s future capital requirements will depend on many factors, including the Company’s rate of revenue growth, the expansion of the Company’s marketing and sales activities, the timing and extent of spending to support product development efforts, the timing of introductions of new services and enhancements to existing services, and the continuing market acceptance of our services. To the extent that existing cash and securities and cash from operations are insufficient to fund the Company’s future activities, including potential acquisitions of complementary eClinical technology companies, the Company may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to the Company or at all.

Project cancellations, which can be made by customers without penalty, are a normal part of the clinical research services industry and occur for a variety of reasons outside our control. Some examples of reasons for cancellations are noted below:

The FDA can request changes in a clinical trial program – additional Phase II trials may be requested before Phase III trials may begin;

Mergers and acquisitions – client companies can be acquired and the resulting review of clinical programs can result in project cancellations due to similar compounds in development by each company;

Short project start timelines can result in client decisions to utilize paper instead of eClinical technologies which require longer start times;

Adverse and serious adverse reactions to the study drug;

Poor results or lack of statistically significant performance of drug in active trials based upon interim analysis;

Adjustments of future subscription license commitments based upon actual usage during prior contract year.

Contractual Obligations

We do not have any special purpose entities or any other off balance sheet financing arrangements. We have operating leases for office space and office equipment and a capital lease for the purchase of third party software.

On February 1, 2005, the Company entered into two loan agreements with RBC Centura Bank. These loan agreements were modified on May 31, 2006 when a third loan agreement was added and on May 31, 2007 when a fourth loan agreement was added. The first agreement is a $2,500,000 revolving accounts receivable line of credit which provides for borrowings up to 80% of current accounts receivable balance at the prime rate of interest plus 0.25%. This line of credit has $1,669,000 outstanding as of March 31, 2009 and these borrowings are secured primarily by accounts receivable and other corporate assets. The second agreement is a $300,000 equipment line of credit which was repaid during the three months ended March 31, 2008. This loan funded equipment purchases and provided for interest at the bank’s prime rate of interest plus 1.0%. The third agreement is a $500,000 equipment loan which has $208,670 outstanding as of March 31, 2009. Borrowings under this equipment loan are being paid over a period of 36 months at the bank’s prime rate of interest plus 0.75%. The fourth agreement is a $240,000 equipment line of credit which had $173,334 outstanding as of March 31, 2009. This loan funded equipment purchases and provided for interest at the bank’s prime rate of interest plus 0.75%. Borrowings under the equipment line of credit will be paid over a period of 39 months. The capital equipment borrowings are secured primarily by the fixed assets that were acquired. In addition to the loans listed above, the Company has an additional amount of $500,000 available to borrow through the draw down period which expires September 10, 2009. As of March 31, 2009, the Company has not exercised this option.

Working capital borrowings are secured primarily by our accounts receivable and other corporate assets while capital equipment borrowings are secured by the fixed assets that were acquired. Under the terms of these credit lines, we are required to comply with certain financial covenants. As a result of the goodwill impairment charge recorded during the third quarter of 2008, the lender amended certain restrictive financial covenants related to the outstanding debt such that the Company was in compliance at December 31, 2008. To the extent we are unable to satisfy those covenants in the future, we will need to obtain waivers to avoid being in default of the terms of these credit lines. If an un-waived default occurs, the bank may require that we repay all amounts then outstanding. We expect that we will have sufficient resources to fund any amounts which may become due under these credit lines as a result of a default by us or otherwise. However, any amounts we are required to repay prior to a scheduled repayment date would reduce funds that we could otherwise allocate to other opportunities that we consider desirable.

Inflation

To date, we believe that the effects of inflation have not had a material adverse effect on our results of operations or financial condition.

Certain Factors Which May Affect Future Results

We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This discussion highlights some of the risks which may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.

Forward Looking Statements and Risks

We believe that some of the information in this document constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in this Report, particularly in “Risk Factors.” You can identify these statements by forward-looking words such as “might,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and “continue” or similar words. You should read statements that contain these words carefully because they:

●

discuss future expectations;

●

contain projections of future results of operations or financial condition; or

●

state other “forward-looking” information.

We believe it is important to communicate our expectations to our stockholders. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors and cautionary language discussed in this Report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in our forward-looking statements.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report.

All forward-looking statements included herein attributable to any of us, or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our cash and cash equivalents are invested with highly-rated financial institutions in North America with the primary objective of preservation of principal. When purchased, the investments generally have a maturity of less than 3 months. Interest income on certain of these investments is subject to interest rate risk and interest income will fall if market interest rates decrease. To minimize market risk, we invest primarily in money market funds and bank certificates of deposit. All of our investments at March 31, 2009 met these criteria. Due to the conservative nature of these investments, we do not believe we have a material exposure to interest rate risk.

There have been no material changes in other market risk from the information provided at the end of Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the registrant's Form 10-K as of December 31, 2008.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures.

The Company has established disclosure controls and procedures to ensure that material information relating to etrials Worldwide, Inc. is made known to the officers who certify the Company financial reports and to other members of senior management and the Board of Directors. Based on their evaluation, the Company’s principal executive and principal financial officers have concluded that disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of December 31, 2007 to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in Internal Control over Financial Reporting.

There was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s control over financial reporting.

The evaluation of our disclosure controls included a review of whether there were any significant deficiencies in the design or operation of such controls and procedures, material weaknesses in such controls and procedures, any corrective actions taken with regard to such deficiencies and weaknesses and any fraud involving management or other employees with a significant role in such controls and procedures.

Our management does not expect that our disclosure controls and procedures and our internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. The design of any system of controls is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

On December 4, 2008, we filed a lawsuit in the Superior Court of Wake County, North Carolina, etrials, Inc. v. Tapestry Pharmaceuticals, Inc., File No. 08-CVS-21113, against Tapestry Pharmaceuticals, Inc., seeking damages in the amount of $216,794 for unpaid invoices, as well as accrued finance charges and attorneys' fees. etrials, Inc. provided various drug development support activities to Tapestry pursuant to a Master Services Agreement and various task orders. In or around the first quarter of 2008, Tapestry informed the Company that it was unable to continue with the projects that were the subject of the agreement, and the Company ceased performing services. We requested payment of the outstanding invoices from Tapestry, but to date, Tapestry has failed to pay. The complaint was served on February 3, 2009, and we do not know whether Tapestry will defend the lawsuit or whether it will contest any of the damages.

On December 29, 2008, we filed a lawsuit in the Superior Court of Wake County, North Carolina, etrials, Inc. v. Archer Biosciences, Inc., File No. 08-CVS-22556, against Archer Biosciences, Inc., seeking damages for unpaid invoices in the amount of $358,700, as well as for accrued finance charges and attorneys' fees. etrials, Inc. provided various services to Archer pursuant to four separate task orders, and incurred further expenses for which Archer agreed to be responsible under a Master Services Agreement and task orders. When Archer informed the Company that it would not be continuing with most of the project, the Company demanded payment as reflected in its invoices to Archer. Archer disputes an unknown amount of the invoices, and we entered negotiations to attempt to resolve the claim. When negotiations broke down, the Company filed suit seeking damages for the unpaid invoices. Archer has obtained an extension of time to file the answer, and settlement discussions are ongoing with Archer's counsel.

On January 6, 2009, we filed a lawsuit in the Superior Court of Wake County, North Carolina, etrials Worldwide, Inc. v. Robert Sammis and Brendon Ball, File No. 09-CVS-00275, against its former Chief Operating Officer and Vice President of Client Services, Robert Sammis, and its former Director of Product Development, Brendon Ball, seeking injunctive relief and damages in excess of $10,000. We filed the lawsuit to enforce Confidentiality Agreements that Sammis and Ball signed while at etrials, and to prevent the disclosure or unauthorized use of confidential or non-public information of etrials in connection with the employment of Sammis and Ball at Unithink, Inc., a direct competitor of etrials. On February 2, 2009, the court issued us a preliminary injunction against the defendants. Unithink was added to the case as a defendant on February 9, 2009. In May 2009, the defendants filed counterclaims against us, including for sanctions for frivolous claims, wrongful injunction, untair trade practices and unpaid commissions. We believe these counterclaims are without merit and intend to vigorously defend against them. The lawsuit against Sammis, Ball and Unithink remains pending, and etrials will continue to take all such further actions relating to Sammis, Ball and/or Unithink as are necessary to protect the information and customers of etrials to the full extent permitted by law.

Item 1A. Risk Factors.

The primary risks related to our business described in our Annual Report on form 10-K for the year ended December 31, 2008 remain relevant, with those related to general economic conditions and customer cancellations heightened through March 31, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

No unregistered sales of securities were made during the quarter that were not previously reported on a Current Report on Form 8-K, except for stock option and restricted stock grants for compensation purposes in the normal course of the Company’s business.

On August 12, 2008, the Company announced a plan to repurchase up to $1,000,000 of the Company’s common stock through June 30, 2009. The Company will determine when and if the re-purchases are in the long-term interests of our stockholders. This new program replaces the prior stock repurchase program that expired on June 30, 2008. Repurchases will be made in compliance with the limitations of securities laws, which limit the timing, volume, price and manner of stock repurchases. No stock was repurchased during the three months ended March 31, 2009.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

The Exhibit Index that follows the signature page of the Report is hereby incorporated by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ETRIALS WORLDWIDE, INC.

May 11, 2009	By:	/s/ M. DENIS CONNAGHAN M. Denis Connaghan President and Chief Executive Officer (Principal Executive Officer)

May 11, 2009	By:	/s/ JOSEPH (JAY) F. TREPANIER III Joseph (Jay) F. Trepanier III Chief Financial Officer (Principal Accounting and Financial Officer)

EXHIBIT INDEX

Exhibit	Description

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*Filed herewith.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

ETRIALS WORLDWIDE INC. 10-Q